In U.S., recovery programs spur signs of hope ...

By NEIL IRWIN The Washington Post

Friday

Oct 30, 2009 at 12:01 AM

The U.S. economy roared to life this summer, as an of growth in two years.

The Commerce Department reported Thursday that the nation's gross domestic product rose at a 3.5 percent annual rate in the July-through-September quarter, the strongest evidence yet that the country has begun to emerge from the deepest downturn in decades.

But there were few signs in the new data that the private sector will be able to sustain that growth once the government pulls back, or that the rise will soon translate into an improving job market.

The unemployment rate has continued rising in recent months, to 9.8 percent in September, as businesses remained reluctant to hire.

"We've had a technical end to the recession, which is something that economists and bankers like to talk about," said Robert Dye, senior economist at PNC Financial Services Group. "But it's not going to feel like we've had an end to the recession on Main Street until unemployment starts to go down."

The renewed growth of the U.S. economy -- which followed a 6.4 percent rate of contraction in the first quarter and a 0.7 percent decline in the second -- was driven by sweeping government interventions, including the highly publicized Cash for Clunkers program to stimulate automobile sales, a first-time home buyer tax credit and other policies to stimulate housing, and the rollout of federal stimulus spending.

Economists are wary about what happens as those programs recede.

Cash for Clunkers is already over, Congress is looking to extend the home buyers tax credit through the first part of next year, and stimulus spending is set to taper off over the course of 2010.

For the expansion to be sustained -- let alone accelerate enough to create steady job growth -- businesses must gain enough confidence to invest in the future, consumers will need to once gain make purchases absent government incentives, and buyers of American products abroad will need to open their wallets, economists said.

Progress on those fronts is mixed. The good news is that the deck is now cleared for a recovery. Businesses, having slashed their inventories for six of the last seven quarters, are now rebuilding them.

Housing investment, having subtracted from the economy for three straight years, is now ticking up. Even business investment in equipment and software perked up, after six straight quarters of decline.

The bad news is that loans are still hard to get and businesses have become highly risk-averse.

As if underscoring the continued hard times for workers, the Labor Department said in a separate report Thursday morning that 530,000 people filed new applications last week for unemployment insurance benefits.

President Obama, addressing small-business owners, said that "while this report today represents real progress, the benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well."

Congress, meanwhile, was moving Thursday to extend one of the support struts that contributed to third quarter growth, expanding the first-time homebuyer tax credit that was part of February's stimulus bill -- and scheduled to expire Nov 30 -- into next year.

An approach being considered by the Senate, which has gained bipartisan support in that chamber, would allow first-time buyers to receive an $8,000 tax credit if they sign a contract by April 30 and close on it by June 30.

The plan would also enable homeowners shopping for a new primary residence to receive a $6,500 tax credit if they owned their home for five consecutive years in the previous eight years.

The proposal limits the purchase price to $800,000 and imposes income caps so that individuals who earn more than $125,000 annually and couples who earn more than $225,000 would not be eligible for the program.

The Obama administration and Congress are also considering other steps that could help provide a continued economic boost, such as extending unemployment insurance benefits and making a $250 payment to Social Security recipients in 2010.

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